Quick Hit #18: Victory Day and the Long War
May 16, 2022
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Quick Note: I was traveling this past week and didn’t get to write an update as quickly as intended. Please forgive the gap! We’ll try and keep updates coming a bit more quickly but the continued uncertainty and changing schedules takes a toll. Thanks for bearing with us!
A Quiet Victory Day in Moldova and Russia
As we discussed in our last Moldova Matters update lots of expectations were placed on the May 9th Victory Day holiday both in Moldova and in the broader region. Many predicted that Putin would declare a national mobilization and attempt to harness the national fervor of the day to bring together the resources he needed to win the war (or at least not lose so badly). This did not happen. In his speech in Moscow Putin mostly played his greatest hits. The war was “necessary” (but not a war) and that it was caused by nazis and the west not by Russia. He focused the speech on the Donbas in the east of Ukraine and only turned heads a bit when he noted that this war was for the defense of “Russian territory.” In this, he implied that the fake “separatist republics” as well as the Ukrainian Kherson oblast in the south were part of Russia. Rather than making news though, this simply supported the broad consensus of Kremlin watchers - Russia intends to officially annex as much of Ukraine as it can.
In stark contrast to Putin’s short, grievance filled speech, President Zelensky aired a speech marking the holiday while predicting Ukrainian victory in this war as well.
In Moldova, Victory Day was also generally quiet. Many had feared what might happen in the holiday, especially given the steady and unsettling drumbeat of attacks in Transnistria and general uncertainty of the past weeks.
During the day, the country’s leadership laid wreaths at the war memorial and solemnly observed the anniversary of the end of WW2 with messages promoting peace in Europe. Notably, President Sandu was absent from the events citing unspecified health problems which also caused her to miss a press conference with the UN Secretary General who was in Chisinau on May 9th. Prime Minister Gavrilita filled in and President Sandu was back to official duties on May 10th.
The opposition Communist and Socialist parties (BCS block) marched to commemorate Victory Day with many defiantly wearing the banned St. George’s ribbon. Former President Igor Dodon gave a statement about the war in Ukraine saying:
“What is happening in Ukraine is deplorable. They are our neighbors, our brothers. There is a very large Ukrainian diaspora in Moldova. If I'm not mistaken, the second largest after the Moldovans. Therefore, what is happening in Ukraine is very painful. But the Russians are also our friends, our strategic partners. It is a pity that they did not find a solution peacefully. We hope that they will find a diplomatic solution in the near future,”
Brief Analysis: It is worth noting, that Mr. Dodon has been unable for some time to suggest ways in which Russia is a “friend” of Moldova. His basic argument is that if only Moldova (and Ukraine presumably) did whatever Russia wanted things would be better! Gas would be cheaper, trade relations stable, threat of military conflict gone. The only price is obedience. This author isn’t sure what Mr. Dodon’s definition of “friendship” is but it is hard to imagine it is healthy.
Following the marches and parades the police announced fines against 103 persons for displaying banned symbols of Russian aggression. Among these are 10 BCS MPs and the Bishop of Balti. The police further noted that they had interviewed all textile manufacturers in Moldova and concluded that the ribbons were not produced here but were brought in illegally or were leftovers from past years. Mr. Dodon, who is to be fined, has suggested that he will appeal to the European Court of Human Rights over this treatment. A body from which Russia has withdrawn over the war.
Meanwhile, Russian forces bombed Odessa on May 9th destroying a large shopping center and striking residential buildings.
Transnistrean Tensions Continue
Meanwhile, Transnistria continues to be on edge. The local “authorities” have extended their red code for terrorism through May 25th. On May 13th, there were an additional 2 attacks in the region with molotov cocktails being thrown at 2 buildings including a military enlistment office. No one was injured or killed and local police stated that the car driving the perpetrators was foreign. No further information was provided.
Meanwhile, in an interview President Zelensky answered a question about Transnistria indicating that Ukraine did not see a serious military threat there. He said:
“This may be a challenge, but we do not see too much threat there,”… “There may be an attack in Transnistria, where 100% of the people are controlled by Russia. The military there are both local and Russian. There may be up to 15 thousand groups, but they are not very ready. They have no borders with Russia, only with us and Moldova. They can have additional military only from the sky, for example, a landing, ” … “If they go, we are not very afraid of them, because out of these 15,000 people there, up to 3,000 people know how to fight,”
Moldovan Security
The most impactful news of the week in Moldova were the statements made by US director of national intelligence Avril Haynes to the Senate. In it she stated:
“We estimate that President Putin is preparing for a protracted conflict in Ukraine, during which he still intends to achieve goals outside the Donbass,”
Specifically, she explained that US intelligence estimates that Putin has not given up on maximalist goals including the capture of Odessa and linking up to Transnistria. At the same time she noted that the stated or assessed desire for these actions is not supported by current Russian capabilities and that a major mobilization of new troops would be required for Russia to achieve its most ambitious goals.
NATO Deputy Secretary General Mircea Geoana noted that he and Director Haynes had “very similar” analysis but expanded as follows:
“There is a significant gap between President Putin's political ambitions and opportunities. He has inflated ambitions. Whereas his military power in Ukraine, the defeat in the Kyiv region, the decline in the morale of the soldiers are very different from these ambitions, ”
US Ambassador to Moldova Kent Logsdon reiterated that the US sees no immediate threat to Moldova and that the Embassy is working as usual.
President Sandu also responded in the following statement:
“There is no reason to talk about the risk in the next month or two. I think we are safe. The US representative said there was a risk, but she didn't say it could happen. This risk has always been there. From what I understand, she didn't say anything new. She said that before that Russia had plans, they were known. Now Russia has no specific plans. Accordingly, all scenarios are possible. But I repeat: the citizens of Moldova have nothing to worry about,”
It’s worth noting, that these statements from both western officials and President Sandu use careful wording about “imminent” or “next month or 2” timelines. The Moldovan government and western partners agree that there are not specific plans or imminent threats at this time. A gap in rhetoric follows these clear statements. The US assesses that Putin has the intention or aspiration to continue this war through Ukraine to Transnistria and, by default, Moldova. The fact that he cannot do this today, tomorrow or in a month notwithstanding. This point has so far elicited no comment from the Moldovan Presidency or Government who are careful not to address any topics outside of “imminent threats” of the next “month or 2."
Moldovan Military Capabilities
At the same time as the country’s leadership carefully parses statements about the threat Moldova faces, the press has taken the question much more seriously in the past month. Online outlet Newsmaker published a review of the Moldovan Army noting serious issues. Here is a summary of some key points:
The national army has around 6,000 soldiers (sometimes quoted as 5,000). The total number is not public and the mix of professional soldiers and conscripts is also not public.
The airforce has 6 MiG-29s, none of which fly. They have 4 Mi-24 attack helicopters as well as a number of transport planes and helicopters. There is unreliable information as to how many are operational.
The army has 390 infantry fighting vehicles, 11 self propelled artillery pieces, 69 towed artillery pieces and 25 Multiple Launch Rocket Systems (MLRS). No tanks.
Moldova has zero military industrial capability outside of simple workshops for basic repairs.
For years, Ministers of Defense from many political parties have talked about the need for a modernization of the armed forces. Almost no budget has been allocated to this over the years with Moldova spending only 0.36% of GDP on defense, one of the smallest amounts in Europe.
Commenting on the armed forces, Elena Myrzak, Executive Director of the NATO Information and Documentation Center said the following:
“Neutrality is just fake. For many years we have been saying that we are a neutral country and nothing threatens us, that there are no military risks, that we do not need an army and there is no one to fight with. Neutrality will no longer help us, just as it did not help Ukraine. States like Russia have their own plans, and these plans are difficult to discern or predict,”
In summary, Moldova has a military designed for very limited police actions in a very safe neighborhood. Some would say that Moldova lived in a safe neighborhood until recently and was therefore acting reasonably. That is simply not realistic however. Russia invaded Ukraine in 2014. Russian troops have been stationed 30 km from Chisinau since the early 90’s. Just as in the case of energy policies and dependence on Russia, many generations of Moldovan politicians made decisions that severely restrict Moldova’s options in this crisis. A very interesting thing to watch going forward is how President Sandu and Prime Minister Gavrilita will go about rectifying these dual economic and security deficiencies. If of course, they have time to do so.
Economic Woes
This week the National Bank reported that inflation in Moldova may reach 31% in 2022. The main driver of inflation is the war and corresponding loss of markets, trading partners, supply chain and export infrastructure. At the same time the bank notes that inflation is increasing worldwide but that Moldova is more threatened by it because of the much higher percentage of food, utilities and transport in Moldova’s “basket of consumer goods.” Put simply, Moldova is poorer than most countries and inflation hits the poor hardest. Meanwhile, the IMF has praised the Moldovan authorities for efforts to fight inflation by raising interest rates from 3% pre-war to 15.5% today. While the praise of the IMF is fine, it would be more comforting to Moldovans if the IMF would state that these measures will actually help much. Given the external drivers of the crisis it seems that Moldova has very few tools to combat it locally.
For most Moldovans, a clear example of inflationary pressures is the skyrocketing price of sunflower oil, the staple cooking oil of the region. The price on the Moldovan market has risen 50% sparking an investigation by the Competition Council. The Moldovan sunflower oil market is one of the most lucrative in the country and it is monopolized by Moldovan-American company Transoil. Transoil claims that they kept prices low for the first 2 months of the war operating at a loss but have been forced to raise prices due to rising costs of production. It will be interesting to see if the Competition Council’s investigation of the monopoly will result in anything other than press releases from both sides.
Meanwhile, another indicator of the rising economic crisis are the lines at border crossings to Romania. Trucks crossing the border are up 73% compared to last year as trucking and western bound trains now have to transport products that were previously shipped by sea or by truck and train to the east. For example, Moldova still sells the majority of its exported apples to Russia. But the costs of this business have skyrocketed from $3,000 / 20 ton truck to $9,000 - $11,000 / truck which now travel Romania > Hungary > Slovakia > Poland > Belarus > Russia. With shipping costs, and low prices in Russia, some farmers are selling at a loss. Worse still, there are few other market options for Moldovan apples. Romania is flooded with Polish apples where the government subsidizes production at 40%. Moldova is seeking clients in the middle east but also has trouble competing there. Egypt for example has high tariffs on the import of Moldovan apples but none on the import of Romanian or Polish apples due to an EU free trade agreement.
These examples just scratch the surface of the economic crisis facing Moldova. Loss of markets, loss of import and export infrastructure (port of Odessa), lack of global trading relationships, high fuel prices, and much more are putting incredible pressure on Moldova’s fragile economy.
Energy Crisis
Gas and energy prices continue to rise in Moldova and the specter of a full cutoff of Russian gas continues to linger as GazProm has not responded to Moldovan requests to delay the audit of historical debts. In essence, they are retaining the right to shut off Moldova’s energy at any time. Prices are expected to increase more over the summer and the Director of MoldovaGaz issued the following statement:
“Taking into account the current circumstances, in order to fully fulfill contractual payment obligations and not jeopardize the supply of natural gas, we ask you to consider the possibility of advance payments for natural gas that may be consumed in subsequent months. This will allow Moldovagaz to ensure uninterrupted gas supplies to Moldova,”
He also noted that they are exploring a differential payment scheme whereby consumers will be charged more in the summer in order for the burden in winter to feel lower.
Minister of Infrastructure Spinu assures the public that if gas is fully cut off both gas and electric supplies can now be brought from Europe (at least in the hot season).
Quick Analysis: Back in the 90’s GazProm bills, credits and debt instruments became a default B2B currency in Russia during the darker days of the post-Soviet economic realignment. Almost every company and household in Russia used natural gas in some way - just like Moldova. This resulted in an unofficial “currency” that helped stabilize trade while the ruble went through multiple crashes and revaluations. Why is this important? Because Moldova is pretty similar in terms of reliance on gas. The lei isn’t going to collapse, but the asking for pre-payments is incredibly telling in it’s lack of creativity. MoldovaGaz, or the government, would no doubt love zero interest loans in this form (who wouldn’t). But why not take the opportunity to do more? If they really want prepayments they should offer them at an interest rate that is profitable to companies. MoldovaGaz could issue effective “energy bonds” in the form of interest bearing pre-payments with relative ease. Would anyone buy them? Probably yes. But who knows - perhaps one of our readers is sharper on energy politics and can comment on this angle.
Ending on a High Note
It’s high time we get some positivity in our Moldova Matters article endings again! Luckily, we have just the thing this week.
Moldova won 7th place in Eurovision! While 7th may not seem great it’s important to get some context. Eurovision is a song competition where countries enter a song and are voted for through 2 semi-final rounds and then compete in a finals round with 2 stages of voting. In the first stage, country juries cast votes for any country other than their own. In the second stage, there is a popular vote from people all over Europe and Australia (for some reason). Moldova did poorly at the country voting stage and there is a brewing scandal whereby 6 countries votes were disqualified including Romania. Romania claims they cast their 12 votes (first place) for Moldova. But in the competition, their jury was prevented from appearing live with “technical difficulties being cited” and the European Broadcasting Corporation recast their 12 votes for Ukraine. This was not some conspiracy to support Ukraine (which needed no help to blow out the other competition and get first place) as Georgia intended to vote for Ukraine but had their votes recast for the UK. Clearly, the Byzantine Eurovision system of voting and counting needs some work.
Why is this a good news story? It’s the popular vote. Ukraine dominated the competition handily winning BUT Moldova was second place by a long margin over the next countries in the popular vote. Much more if you consider the gap between Moldova’s popular vote rankings and the (somewhat suspect) country jury ratings.
Bottom line, Moldova had an amazing night. Enjoy Zdob şi Zdub & Advahov Brothers - Trenuleţul !
Here’s a link to the full song as a music video. Go Moldova!!
Way better than when we rode the Chisinau-Bucharest train back in the 1990s😎